Voluntary Provident Fund

Voluntary Provident Fund (VPF) is also known as a Voluntary Retirement Fund. It is the voluntary fund contribution from the employee towards his/her PF account. The contribution must be over and above 12%. However, the maximum contribution can be up to 100% of the basic salary plus dearness allowance. Interest is earned at the same rate as the EPF.

Unlike, Employees’ Provident Fund Scheme, employers are under no obligation to contribute to their employees’ voluntary provident fund portfolio. Likewise, an employee also has no obligation to contribute to this plan. It is important to note that once you have chosen to contribute to a voluntary provident fund, the same cannot be terminated or discontinued before the completion of base tenure of 5 years. The interest rate of such plans is decided by the Government of India at the starting of each financial year.

Benefits of Voluntary Provident Fund

  • Safe option to invest: Since this scheme is operated by the Government of India. There are no risks involved in investing as compared to other long-term investment options offered by private organizations.
  • The high rate of interest: Under this scheme, the rate of interest is 8.50% p.a. The interest that is generated from the contributions is also exempt from tax.
  • The application process is easy: The process to open a VPF account is very simple. Employees can contact their employer’s finance team and request them to open a voluntary provident fund account by submitting the registration form.
  • The transfer process is simple: In case employees change their jobs, it is very simple for them to transfer the VPF account from their old company to the new one.

Eligibility for Voluntary Provident Fund

Since the Voluntary Provident Fund scheme is an extension of the Employees’ Provident Fund scheme, only salaried employees who receive payments monthly in their salary accounts are eligible to invest in this scheme.

Documents required

The below-mentioned documents must be submitted for employees to open a VPF account:

  • Ministry of Finance- Company registration certificate with the Ministry of Finance (MoF) must be submitted
  • Form 24 and 49.
  • In case the organization is an ‘Sdn Bhd’, the memorandum and articles of association must be submitted
  • The details of the company profile
  • Business registration certificate
  • Other documents as and when required by the employer

Tax benefits available under a Voluntary Provident Fund

When it comes to investment options in India, the Voluntary provident fund is considered as one of the best. The employees are eligible for tax benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. The interest received from these contributions is also exempt from tax. However, in case the rate of interest is more than 9.50% p.a., the amount will be taxable.

The interest rate of a VPF

The rate of interest is set by the Indian Government and is revised every year. The rate of interest for FY 2019-2020 is 8.50% per annum. Previously, the rate of interest was 8.65%. Investments towards a VPF account is viable because of its high rate of interest and tax benefits. 

Rules and regulations of a VPF

The rules and regulations of the VPF account are mentioned below:

  • Only salaried employees or those who are working for organizations that are recognized by the Employees’ Provident Fund Organization of India, can open a VPF Account. The self-employed individual who is working in the unorganized sectors cannot open a VPF account.
  • You can open a VPF account at any time of the financial year. Investment in this account cannot be stopped before the completion of the base tenure of 5 years.
  • It is important to note that the interest rate on a VPF accounts is determined at the beginning of the financial year by the Indian Government. The rates can increase or decrease when compared with the previous years.
  • The full amount available at maturity can be withdrawn at the time of resignation or retirement. Individuals can also transfer their VPF amount from the previous employer to their current employer. In case the account holder passes away, the legal heir or the nominee will receive the total amount that has been accumulated.
  • Partial withdrawals in the form of loans can be made against the VPF account. In case the amount is withdrawn before the maturity period, the withdrawn sum is taxable.

The process to withdraw money from a VPF account

Withdrawing money from a VPF account could come in handy in case of financial requirements due to medical emergencies. The employees are required to fill up Form-31 and give a request letter in writing for VPF withdrawal. Form-31 can be collected by the employees from their employer’s Human Resource (HR) team or on the government’s portal. All required documents, including the employees’ detail such as PF number, postal address, and bank details must be submitted. A cancelled cheque must also be submitted. All the documents that are submitted must be self-attested.